DXY stabilised last night after an impressive puke:
AUD the reverse:
Oil sagged which offers hope for the risk rally:
Metals do not:
Nor big miners:
EM stocks are crashing up:
With some support from junk:
But the Treasury curve was bashed again:
And stocks barely held the gains:
Various Fed speakers pushed the market around. I expect another rug pull in due course. Sticky inflation is still stuck above 5% monthly:
Led by strong wages:
Wage growth is easing but only slowly and remains very high.
So, is it time already to short the AUD bounce? Credit Agricole:
Despite a relentlessly dovish BoJ, the JPY has rallied in the past week on the back of a long USD/JPY position liquidation. We believe this clearing out of positioning has generated an opportunity to get back short the JPY.
While we acknowledge that October’s US inflation data suggests the Fed will likely downshift its rate hikes from 75bp to 50bp increments in December, rates are still going higher. We also note, as several FOMC members will this week, that the Fed has a lot more work to do in terms of raising rates to control inflation.
While we note the RBA will continue to hold the AUD back against the USD, the currency can still outperform the JPY and the dovish BoJ.
We acknowledge that China’s re-opening is modest thus far and that measures to support the property market will not turn the market around instantly. But we think it is a very important signal that policymakers are pivoting away from policies that were weakening the economy and are now looking to resuscitate it.
We recommend buying AUD/JPY and USD/JPY in an equally-weighted basket with a stop-loss of-2% aiming for a gain of 4%. We enter the trade at a USD/JPY spot rate of139.46and an AUD/JPYspot rate of93.28.
I don’t know when the market begins to face its policy uplift. The Chinese pivot helps take some of the pressure off AUD but it puts more pressure on the Fed to hike as commodities rise. I still see the Fed has no choice but to hike until something breaks, even more so now.
That DXY bullish and AUD bearish from today’s levels.
